According to the New Monetarist Model,a negative shift in the k(r)function causes:
A) a shift right in aggregate demand, output increases and the real interest rate increases.
B) a shift left in aggregate supply, output decreases and the real interest rate increases.
C) a shift left in aggregate demand, output falls and the real interest rate decreases.
D) a shift right in aggregate supply, output increases and the real interest rate decreases.
E) a shift left in aggregate demand, output falls and the real interest rate increases.

Question

Quizplus · Accepted Answer

A negative shift in the k(r) function means that it becomes more expensive for firms to finance investment projects, leading to a decrease in aggregate demand. As a result, output falls and the real interest rate decreases (since there is less demand for loanable funds). This is consistent with the New Monetarist Model, which emphasizes the role of frictions in credit markets in determining aggregate outcomes.

According to the New Monetarist Model,a Negative Shift in the K(r)function